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USSR used nuclear bombs to stop gas well blowouts

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Fracking Spreads Worldwide
November 14, 2013 - Business Week - Once they start drilling and fracking, though, countries such as China, Argentina, and Russia could experience new oil and gas booms. China has the largest shale gas reserves, estimated to be the equivalent of 212 billion barrels of oil. In shale oil, Russia tops the list with about 75 billion barrels, the U.S. Energy Information Administration says. Australia, Poland, and Algeria all have big reserves.

U.S. Fracking Success Threatens Russian Economy, Strategy
3rd October 2013 - - Russia's abundance of energy resources has long allowed it to use energy both as a foreign policy weapon and as the bedrock of the Russian economy. Whenever energy prices rose, Russia benefited and its neighbors often felt the restraining leash of dependence on Russian energy, particularly natural gas.

The Merits of Dual Pricing of Russian Natural Gas
David Tarr and Peter Thomson
The World Bank* Full Paper here

Abstract: During the accession negotiations to enter the World Trade Organization, the question has arisen whether Russia should charge the same price for the exports of its natural gas as it charges in its home market.

Our economic analysis suggests that pipelines allow Gazprom to segment the Russian market from the European (including Turkey) market and that Russia has market power in the European market.

Based on this market power assumption, we develop and estimate a model in which we assume that Russia is optimizing the price and quantity that it sells in Europe—this was between $79 and $99 per thousand cubic meters (TCM) plus $27 transport costs in 2000 and 2001.

We believe that the Russian market would be better served by competition, but while Gazprom retains a near monopoly, the analysis suggests that Russia should allow Gazprom to raise its domestic prices of natural gas from about $15 to $20 per TCM to the full long run marginal costs (about $35 to $40 per TCM).

This would result in benefits to Russia of about $1.24 billion dollars per year.

The analysis also reveals that, from Russia’s perspective, there is no economic rationale to unify the price of natural gas it sells domestically and abroad.

If Russia were to sell its natural gas to Europe at only full long run marginal cost plus transportation costs, Russia would lose between $5 billion and $7.5 billion per year. On the other hand, consumers in Europe would gain even more (between $7.5 billion and $10 billion per year), as they would consume more gas at lower prices.

If, instead, Russia were to raise its domestic prices to the prices it charges in Europe, Russian industry would incur very large adjustment costs as the gas cost increases would adversely impact on investment and unemployment in the short run.

Absorbing the cost increases would induce Russian industry to switch to alternate fuels and produce less gas intensive products that cannot be justified on the basis of Russia’s comparative advantage.

We estimate that the efficient world price would be achieved if Gazprom were to employ its optimal “two part tariff.”

This means that Gazprom would sell gas to European gas companies at its long-run marginal cost plus transportation costs of about $67 per TCM, plus an access fee for the right to buy gas of between $12 to $15 billion per year.

The optimal two part tariff would double Gazprom’s annual profits in Europe, but it involves significant long-term risks of lost market share.

By identifying the stakes-- who gains and who loses— we hope that we will inform the debate on this important policy issue.

* We thank Harry Broadman, Vladimir Drebentsov, Kevin Fletcher, Bernard Hoekman, Hiddo Houben, Jesper Jensen, Jeffrey Lewis, Johannes Linn, Charles McClure, Petros Mavroidis, Pradeep Mitra, Costas Michalopoulos, Alexander Morozov, Hossein Razavi, Christof Rühl, Thomas Rutherford, Julian Schweitzer, Richard Self, Clint Shiells, Nicholas Stern and Deborah Wetzel for helpful comments and discussions and Maria Kasilag for logistical support.